The 2020 election season is expected to generate record fundraising and spending on political advertisements. The growth in ad spending between presidential campaign years is accelerating.
Political ad spending rose by $2 billion between 2012 and 2016, according to WPP PLC's ad-buying unit GroupM, and by $1.1 billion between 2008 and 2012.
$8.7 billion was spent during midterm congressional elections, up from $6.3 billion in 2016. Spending on political advertisements is projected to hit a new high in 2020 of $9.9 billion, according to the latest U.S. advertising forecast.
The combination of a presidential election, highly energized voting bases on both sides of the aisle and projected record fundraising will buoy political ad spending across all channels including television, digital, radio and social media platforms. Local television stations have always been an important part of the political ad spending because voters still consume local television despite the growth in mobile and streaming services.
The four largest publicly traded owners of television stations are Sinclair Broadcasting (SBGI), Gray Television (GTN), Nexstar Group (NXST) and Tegna (TGNA). Combined, these companies own over 70% share of US television markets.
These stocks are relatively inexpensive relative to the broad market and their own historical metrics. Investor sentiment has been subdued due to concerns about the loss of viewership from cord-cutting and declines in advertising dollars.
We think the digital revenue opportunities and the resiliency of local TV news, particularly in smaller markets, are under-appreciated. The better operators are using content innovation, leveraging mobile and streaming to drive digital growth and to reach beyond their broadcast footprint.
In the addition to the benefits of increased political advertising spending over the next sixteen months, the stations will garner increased transmission revenues which broadcasters receive from cable and satellite companies. A decade ago, transmission revenue was zero and now it is projected to growth to 50% of station revenues by 2025.
As the 2020 election season unfolds, investors should consider the owners of America's local television stations as attractive investment opportunities.